Published August 30, 2008

Market cap falls to 20-mth low in Aug

Value of $609.7b marks 28 per cent decline from October 2007 high

By LYNETTE KHOO

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THE Singapore market sell-off has resulted in a sharp $237.8 billion or 28 per cent drop in market capitalisation from its October 2007 peak of about $847.5 billion.

This came after the month of August saw a further 7.3 per cent fall in market cap to a 20-month low of $609.7 billion - from July's $657.5 billion - as a mixed bag of earnings results in August failed to lift market sentiment. This compares with end-January 2007's market cap of $648.6 billion and end-2006's $604.8 billion.

'Market sentiment is still very bearish, so people are selling on cyclical sectors such as the shipbuilders and property stocks while buying more defensive stocks,' said Macquarie Securities research head Soong Tuck Yin.

Property plays were hit by analysts' cautious reviews on the sector, with CapitaLand losing 23.2 per cent in market cap from a month ago to $12.37 billion, City Developments falling 9.4 per cent to $9.5 billion, and Keppel Land shedding 20.5 per cent to $2.8 billion.

Creating jitters were a recommendation by Goldman Sachs to avoid the sector for six to nine months on weakness in the residential segment, and a UBS forecast of a sharp 34-35 per cent fall in office capital value and prime office rents between 2009 and 2012.

Shipbuilders Cosco Corp and Yangzijiang saw their market values slump 24.8 per cent to $5.15 billion and 24.4 per cent to $2 billion in August, battered by concerns of rising steel prices squeezing their margins. Investors also steered clear of Cosco over a lack of details given on the surprise retirement of its president Ji Hai Sheng.

Neptune Orient Lines continued to suffer from worries that it might overpay in its bid to acquire Hamburg-based Hapag-Lloyd from Germany's TUI Group, with its market value falling 20.4 per cent to $3.3 billion.

Related link: Click here for the market cap of all SGX-listed companies

Reversing an uptrend in the first six months, resource and agriculture-related stocks slipped further in August as oil prices receded. Wilmar shed 13.8 per cent in market value to $24.3 billion, with its ranking dropping to seventh from July's fourth. Despite a slew of 'buy' calls after posting sterling Q2 results, Indofood Agri dropped 10 places to 64th position after losing 38.3 per cent in market value to $1.6 billion.

But amid the broad sell-offs, there were exceptions. Club operator St James, which was listed on Catalist through a $108 million reverse takeover (RTO) of JK Technology, saw its shares surge 376 per cent to a market cap of $65.2 million, taking a lift from the RTO and a consolidation of its shares thereafter.

The recent 60 per cent stake buy by Singapore Telecommunications in Singapore Computer Systems (SCS) at 12 per cent premium to its share price helped lift SCS' market cap by 33.8 per cent to $228 million in August.

The fall in market values in August from a month ago coincided with the second-quarter reporting season.

Some 30 per cent of the companies disappointed in their earnings, a large jump from the 14 per cent seen in the preceding quarter, according to Citi. About 51 per cent of companies met expectations and 19 per cent exceeded expectations. 'Risk is for further earnings downgrades in coming quarters,' Citi said in a report.

CIMB-GK downgraded its earnings per share estimates by 9 per cent over the past three months, after trimming its forecasts in plantation, property and transport companies.

But most analysts noted that the fall in market cap has been triggered largely by poor market sentiment rather than fundamental reasons. The second-quarter earnings reporting season has seen most company earnings coming in line with or above expectations.

Calling this sell-off an 'irrational pessimism', DMG & Partners Securities senior dealing director Gabriel Yap said he believes the market is coming close to a bottom, given that it is already trading at about 10 times PE, the lowest since the Asian financial crisis and Sept 11.

'We are near the bottom but the magnitude of the (sub-prime) problem will tell us how long more to go before we hit bottom,' Mr Yap said.

According to Citi, the current bear market is probably only two-thirds through and may drag on until early 2009. 'This bear market could potentially last as long as the 2000/01 tech slump (91 weeks) or 1997/1998 Asian financial crisis (82) weeks),' the brokerage said in a report.

In the meantime, defensive and high-yielding stocks such as telcos, media and Reits would likely outperform the broader market, analysts say.

SingTel maintained top place in market cap but dipped a slight 1.4 per cent to $56.2 billion in August, while Singapore Press Holdings put on 2.2 per cent to $6.56 billion.